Petra Korean Value Equity Strategy (3Q 2012)

October 11, 2012

Albert H. Yong
Managing Partner/CIO Petra Capital Management

9F, Anwon Bldg. 14-15 Yeouido-dong, Yeongdeungpo-gu Seoul, Korea 150-871 Tel.: +82-2-3774-0978 Fax: +82-2-783-0079 Email: info@petracm.com

Dear Petra Investors, As a person who is responsible for managing other peoples money professionally, it is frustrating to admit that even the most seasoned professional investors are struggling to beat the market lately as the stock market return diverges with the underlying economy. Most investors incorrectly predicted a weak stock market based on their somewhat correct assessment of the gloomy global economic situation. Returns by the majority of professional money managers have trailed the performance of global stocks since the beginning of 2010, meaning that they have not added any value to their investors. This trend is partly attributed to the fact that markets are now at the mercy of politicians and central bankers. The recent announcement of QE3 by the Federal Reserve is one such example. There is no doubt that this is one of the main reasons of the continued better-than-expected stock market performance. However, problems in Europe have no end in sight. The structural problems lurking beneath the surface in China could always come out and frighten the world. It is nave to think that this unprecedented monetary expansion alone can solve the real world economic problems. A policy of continuously printing money is unsustainable and in a way akin to repeated shots of morphine. But what makes investors life difficult is that it is not always easy to bet against the central banks policy of monetary easing even when they are right about the economy. The old market adage, Dont fight the Fed, is probably correct. Another factor that makes the situation complicated is that the percentage of corporate profits continues to go up and is now at an unprecedented high level despite the gloomy economy all over the world. In fact, the performance of the corporate world has diverged with that of the overall economy, at least until now. This is because corporations may be the unintentional beneficiaries of the recent large deficits run by the U.S. and other governments around the world. These deficits have allowed the aggregate demand to be maintained at the same time when corporations have been cutting wages and shedding jobs. But we believe that the profit margins they enable are not sustainable. In addition, another fundamental change is happening in the stock market. Easy access to information and the capital market means it has become more difficult to outperform the market consistently through active management because the number of market inefficiencies is getting smaller. Despite all these newly found difficulties that baffle most investors, the basic concept of buying a company for a fraction of its true value is still intact. Countless academic studies support the notion that employing a simple value investing over time substantially increases the odds of outperforming the stock market. If the investment is not based on value investing, then what is investment? However, if value investing really works, why do so many socalled "value investors" fail to achieve the payoffs suggested by academic studies? We believe the reason is that whereas the value investing concept is easy to grasp, accurately valuing a company is always a big challenge. Value comes in many different forms. It could be an asset, earnings power, hidden growth potential, external environment and so on. As such, investors should factor into many aspects when valuing a company. Self-proclaimed value investors who only buy stocks with relatively low price-to-earnings or price-to-book ratios may never deliver satisfactory performance to their investors. We, at Petra, have been delivering satisfactory results to our investors by beating the market consistently since inception in September 2009. For

Petra Korean Value Equity Strategy (3Q 2012)

example, we outperformed the market for the past 12 months by 37.9 percentage points and for the past three years by 77.7 percentage points. In our opinion, the price of Amore Pacific Group, a holding company of Koreas No. 1 cosmetics company, has exceeded its intrinsic value. We, therefore, sold out all of our position. KG Inicis, Koreas No. 1 online payment gateway company, continues to post strong financial results. The market is finally beginning to recognize its business potential and the value is gradually being reflected in the price. Accordingly, we are trimming our position, and will continue to do so if the price approaches its intrinsic value. The stock prices of a few of our holdings, including CJO Shopping, also moved upwards. But the prices are still below their respective intrinsic value. Our investment portfolio currently has a weighted average P/E of approximately 6.9. This bodes well for our future performance. While selling some positions at a profit keeps contributing to our performance, finding new undervalued stocks remains difficult. And it is getting harder and harder to find the market inefficiencies. But we also believe that except when the market experiences the speculative frenzy, we can always find undervalued, cheap stocks if we continue to work hard. It usually takes some time for the market to recognize the true value after we buy undervalued stocks. We, therefore, advise our investors to remain patient and long-term minded. We can rest assured that if we remain disciplined and focused on intrinsic value of a company, we will continue to do well in the difficult market. Our goal for investors is the long-term growth of capital at a satisfactory return with minimum risk. But please bear in mind that we expect to experience short periods of underperformance while we are confident that we will generate superior returns over a full cycle.

Very truly yours,

Albert H. Yong Managing Partner/CIO Petra Capital Management

Important Notice This material has been prepared by Petra Capital Management. This material is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the materials. It should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this material are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of Petra Capital Management as a result of using different assumptions and criteria. Petra Capital Management is under no obligation to update or keep the current information contained herein. Petra Capital Management may, from time to time, as principal or agent, have positions in, underwrite, buy or sell, make a market in or enter into derivatives transactions in relation to any financial instrument or other assets referred to in this material. Petra Capital Management operates rules, policies and procedures, including the deployment of permanent and ad hoc arrangements/information barriers within or between business groups or within or between single business areas within business groups, directed to ensuring that individual directors and employees are not influenced by any conflicting interest or duty and that confidential and/or price sensitive information held by Petra Capital Management is not improperly disclosed or otherwise inappropriately made available to any other client(s). Neither Petra Capital Management nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material. 2012 Petra Capital Management. All rights reserved. Petra Capital Management specifically prohibits the redistribution of this material and accepts no liability whatsoever for the actions of third parties in this respect.